SummaryIndian govt running from pillar-to-post as citizens refuse to pay heed to consequences.

India has upped the ante in its drive to restrict gold imports into the world's biggest consumer, introducing regulations that stop just shy of imposing quotas as it tries to stifle demand ahead of a key buying season and narrow a yawning trade deficit.

By tying gold imports directly to export volumes, India is effectively trying to cap how much bullion can be brought into the country, tightening supplies and driving up local prices.

Twenty percent of all gold imports must be used for overseas sales, the Reserve Bank of India said on Monday. India, which has an insatiable appetite for the yellow metal, currently exports less than 10 percent.

Hitting physical demand from India would put more pressure on international gold prices, which have tumbled this year after the U.S. signalled it could begin reining in its economic stimulus and due to selling by exchange-traded funds.

"(The new policy) is the most dangerous circular (for jewellers) we have witnessed in the last 20 years," said Bachhraj Bamalwa, a director at the All India Gems and Jewellery Trade Federation, adding the move could cap imports.

Since the beginning of the year, the government has raised the import duty on gold and the central bank has turned the screws on supplies as they battle to rein in a current account deficit that hit an all-time high of 4.8 percent of GDP in 2012/13.

But they have struggled to curb demand as gold prices plummeted 20 percent this year after 12 years of gains, sparking even bigger interest in bullion.

The latest step by the RBI not only aims to curb imports, but also boosts exports, helping narrow the trade deficit from both sides. India has ruled out a blanket ban on gold imports or any further increase in duty from the current 8 percent.

Morgan Stanley estimates the new policy may restrict overall gold imports to about 200 tonnes a year, adding that even if exports rose 50 percent, total shipments to India would be capped at around 300 tonnes.

India imported 536 tonnes of gold in the first six months of this year alone, compared to a total of 860 tonnes in 2012.

Gold premiums in India, currently at $10 an ounce to London spot prices, could rise as the policy comes just ahead of the wedding season that kicks off in mid-August and festivals such as Diwali when gold is a key part of celebrations. Premiums were as